There are concerns pyramid schemes disguised as mentorships are targeting a wave of young people. Photo: Brooke Cagle / Unsplash
Bogus ‘mentoring’ schemes targeting young people are on the rise, promising them leadership skills and early retirement in return for fees.
RNZ has spoken to more than a dozen people, mostly based in Wellington, who have been approached by strangers on the streets claiming to be 'entrepreneurs' and offering mentorship. Others have friends who have become involved. Once involved, members pay a fee to a mentor and also pay to attend conferences which promise to teach them leadership skills, and eventually they search for new recruits.
One man told RNZ he expressed interest and underwent several calls, with homework given each time. When he questioned the programme, his mentor hung up on him.
Another says they have several friends involved, who all use similar buzzwords like 'financial freedom' and 'breaking out of the nine to five'.
Massey University Business School marketing professor Bodo Lang told Nine to Noon that stories of people being approached by strangers offering mentoring in return for money immediately rings alarm bells.
“I would be concerned if anybody approaches me on the street to sell me anything and particularly if it's mentoring, because by definition, mentoring is something provided by a trusted friend or advisor - often somebody in the same company or somebody who's already in your social network.
“It’s meant to be for free. Mentorship doesn't mean that you get paid. I think anybody who sells anything on the street that requires money for advice, and you don't really know how good the advice is going to be, I think that just brings a lot of alarm bells right away.”
Lang said these schemes were often highly targeted to a specific type of person.
“If you've been approached on the street, that's kind of unusual, but I suspect that they have certain traits they're looking for. And so it might be that somebody looks ambitious, but hasn't quite made it yet.
“There will certainly be indicators that they have that they're choosing, they wouldn't just pick willy-nilly… I think they will look for people that are looking more vulnerable, more likely to participate in these schemes.”
There was a good chance anyone offering paid-for mentorship programmes in this way was operating as part of an illegal pyramid scheme, Lang said.
“If the income that somebody derives in this organisation is entirely derived by other people that they recruited into the organisation, then that is nearly a failsafe sign of being a pyramid scheme, which is of course illegal in New Zealand and there are hefty fines for those.”
The current cost of living crisis meant these kinds of get-rich-quick schemes were extremely tempting to some people, Lang said, but if they really worked then everyone would be taking part in them.
“I think you just need to look at what professions pay well, and then maybe that is your get rich scheme, but maybe not so quickly.”
He said there had been a huge increase in pyramid and Ponzi schemes in the UK in recent times, where the average loss of someone taking part was more than $100,000.
“To me, it sounds more like a get poor quick scheme, because the risk of losing a substantial amount of money that's really high.”
Lang said financial desperation could drive people to fall for someone telling them that they have the key to making easy money.
“I think that's so tempting to take part in, and then of course, these people become highly motivated because they've already passed on some money to receive mentorship or buy a bonus product or whatever it is, and really the only way that they can make money is to recruit new people into this organisation.”
This was particularly troubling, he said, because these people were mostly likely to turn to others in their social circles.
“That really is the strength of these schemes, that they tap into invisible networks that we all have… and unfortunately, most often these schemes turn out not to work. And what you've done is you've lost money, a significant amount often, and you've poisoned your social relationships.
"That, to me, is a really, really sad situation for anybody to be in. I think often these pyramid schemes lead people exactly down that road.”
Pyramid schemes are constantly operating, says Massey University Business School marketing professor Bodo Lang. Photo: 123RF
Lang said pyramid schemes like these ones were not common, but they were constantly operating. A mentorship scheme which offers free advice is “the perfect pyramid scheme”, because there is no tangible products to complicate the deal.
“Of course, only eight percent of fraud is reported. So we don't really know how often this is happening, because there's a whole bunch of things playing into people not reporting this when they've become a victim of this, and one of them is just shame. They're just ashamed that they've fallen prey to this.”
If you have been approached to join one of these schemes, be meticulous about record keeping, Lang said. That means taking down the names and contact numbers of everyone involved, noting all your interactions and all the details of how you have been told that the scheme works.
“If you're even doubtful whether this is working, have a chat to the police, and I think they will be very interested to hear about this.”
If you were concerned about someone you know getting involved in a scheme that did not quite sound legit, Lang said seeking advice from the Commerce Commission and Consumer New Zealand was a good place to start.
“These are hard to detect sometimes, these things, what's legal, what's not legal, it's really tricky sometimes to determine. But I think relying on really official information sources rather than your mates who might say ‘look, that sounds like a great deal’. I think relying on the experts is really useful in this situation, because nobody really should be losing north of $100,000.”
